Investment Newbies, Check Out Those Six-PlexesPosted by Gerard Hagan on Saturday, January 26th, 2013 at 11:48am.
The Manageability Factor
Those new to real estate investing are most likely to want to be involved in the entire process. It is a good way to learn the business and gain experience. You’ll soon know if this type of investing suits you. Having a hand’s on approach also gives you more control. Property managing can be challenging, but as long as you are well organized and have a few hours to devote to the task each week things should go well. True, managing one unit, such as an investment condo, is easier. But managing six units does mean having six separate streams of potential income and is usually worth the extra effort. Tips for newbie managers include making sure you live close to the property and try and get your tenants to supply you with post-dated cheques. It really helps not having to chase rents. Also put together a list of plumbers, electricians and other contractors so you can get help quickly if need be.
Looking at the Cap Rate
The cap rate is determined by how many units your property has. For example, a single condo usually has a lower cap rate than a duplex, a triplex and a six-plex. Location and geography also help determine your cap rate. A six-plex is the perfect blend of potential rental space and cap fees, which usually run between five and six percent. In some cases they are less expensive than many triplexes and condos when the additional income is figured in. Six-plexes located outside of major urban centres tend to have lower cap rates. Find a property that’s close enough for commuting and you’ll most likely have more interested parties wanting to rent. Six-plexes that are specifically built for that purpose have a higher resale value and usually don’t require as much maintenance.
Keep Interest Rates Low
Six-plexes also tend to have the most favourable interest rates, which helps your bottom line. The less expensive the interest rate, the larger the gap between it and your cap rate. Residential and commercial properties command different mortgage rates, and are usually handled separately. Commercial properties generally have interest rates that are one or two percent higher than on residential properties. A few banks, one of note being RBC, sometimes offer residential rates on six-plexes, which means, as of this writing, you are looking at about a three percent rate. Shaving that one or two percent off your mortgage helps increase your overall profit.
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